23 min read

Part 1: Growing a roofing company from $25 - $60 million with hubspot

Below is a conversation I had with ChatGPT 4 going over the financial modelling a typical $25,000,000 roofing executive must make when considering the financial commitment of building a customized Hubspot and hiring a partner to build such a custom CRM. 

The following is me trying to get something I could use to help the $25,000,000 CEO work through the decision making process. I got cut off eventually from asking more questions. 

Stay Tuned for Part 2


Initial Prompt:


My business builds customizations of the Software "Hubspot" and other smaller end point connected software, to the construction industry. Most notably the Roofing industry in the united states. We charge $100,000 for a "large" build, and $35000 for a "light" build. A Large build goes to companies making $10,000,000 to $30,000,000, and a light build is best suited for a company doing $1,000,000 to $3,000,000 in revenue. The top 200 roofing companies in the united states range from $300,000,000 in revenue. From there the 10th largest does about $100 million and it drops quickly from there. There is about 50,000 roofing companies in the US but their income is harder for me to find, and basically the smallest roofing company would do about $1,000,000 in revenue. Based on this information, as well as any information you can find: How would you guess the total size of the Roofing Market in the united states?
 
 
 
Based on the information you provided and historical data, I can provide a rough estimate of the total size of the roofing market in the United States. Note that this estimate is based on limited information and may not accurately reflect the current market size.

You mentioned that the top 200 roofing companies in the US generate up to $300,000,000 in revenue, with the 10th largest company making around $100 million. To simplify the calculation, let's assume that the top 10 companies generate an average of $150 million in revenue each, which would account for $1.5 billion in total revenue.

For the remaining 190 companies in the top 200, let's assume their average revenue is around $50 million each. This would account for an additional $9.5 billion in revenue.

Now, let's consider the smaller roofing companies, of which there are about 50,000. You mentioned that the smallest roofing company would do around $1,000,000 in revenue. To estimate the average revenue for these smaller companies, let's assume a conservative figure of $1.5 million each. This would result in total revenue of $75 billion for the smaller companies.

Adding the revenue from the top 200 companies ($1.5 billion + $9.5 billion) and the smaller companies ($75 billion) together, we get an estimated total size of the roofing market in the United States at around $86 billion.

Please note that this calculation is based on a series of assumptions and approximations and may not accurately represent the actual size of the roofing market. Additionally, this estimate does not account for potential market growth or contraction and other factors that could affect the market size. For a more accurate estimate, it's recommended to conduct comprehensive market research or consult industry reports and data sources.

adam-1   

Do you remember the information about what my company does for customers? If we wanted to generate $8,000,000 in sales from building custom hubspots, and we could build no more than two "large" Builds per month. How many light builds would we need to make in order to earn that revenue? 

  
Yes, I remember the information about your company's services. You mentioned that you provide "large" custom HubSpot builds for $100,000 and "light" builds for $35,000. You aim to generate $8,000,000 in sales and can build no more than two "large" builds per month.

First, let's calculate the annual revenue generated from the "large" builds. If you can complete two "large" builds per month, that's 2 builds * 12 months = 24 large builds per year. With each "large" build priced at $100,000, the total annual revenue from "large" builds would be 24 * $100,000 = $2,400,000.

Now, you want to reach a total annual revenue of $8,000,000. To determine the revenue needed from "light" builds, subtract the revenue from "large" builds:

$8,000,000 (total revenue) - $2,400,000 (revenue from large builds) = $5,600,000 (revenue needed from light builds)

Next, we'll determine the number of "light" builds required to generate $5,600,000 in revenue. To do this, divide the required revenue by the price of a "light" build:

$5,600,000 (revenue needed from light builds) / $35,000 (price of a light build) = 160 light builds

To achieve your revenue goal of $8,000,000, you would need to complete 24 "large" builds and 160 "light" builds per year.

adam-1  

If we are earning $360,000 revenue per employee how many employees would we need to service that revenue?

 
To determine the number of employees needed to service the desired revenue, you can divide the target revenue by the revenue generated per employee.

You mentioned that your company aims to generate $8,000,000 in sales and that you currently generate $360,000 in revenue per employee. To calculate the number of employees needed, use the following formula:

Number of employees = Total revenue / Revenue per employee

Number of employees = $8,000,000 / $360,000 Number of employees ≈ 22.22

Since you can't have a fraction of an employee, you would need to round up to the nearest whole number. In this case, you would need approximately 23 employees to service the target revenue of $8,000,000.

adam-1 

How do you do a risk adjusted return calculation? Teach this to me as if I have less than a high school level education in math.

 
A risk-adjusted return is a way to measure the performance of an investment while considering the amount of risk involved. It helps you understand if the returns you receive are worth the risks you take. To explain this concept in a simple way, let's start with two basic ideas: return and risk.

1. Return: This is the money you make from an investment, such as stocks or bonds. It can come in the form of interest, dividends, or increase in the value of the investment.

2. Risk: This is the uncertainty or the chance of losing money on an investment. Higher risk investments have a greater chance of losing money, while lower risk investments are considered safer.

Now, imagine you have two friends, Alice and Bob, who both want to invest $1,000. Alice puts her money in a very safe bank account that pays 2% interest per year. Bob decides to invest in a riskier stock that has the potential to make 10% per year. At the end of the year, Alice earns $20 (2% of $1,000) and Bob earns $100 (10% of $1,000).

At first glance, it seems like Bob made a better investment because he earned more money. But we need to consider the risk involved in both investments. Alice's investment was very safe, while Bob's investment was much riskier. To compare their investments fairly, we need to adjust their returns based on the risk they took.

One common method for calculating risk-adjusted return is the Sharpe Ratio. The Sharpe Ratio takes the difference between the investment's return and a risk-free rate (usually the return on a government bond or savings account) and divides it by the investment's risk, which is measured by its volatility or how much its returns change over time.

Sharpe Ratio = (Investment Return - Risk-Free Rate) / Investment Risk (Volatility)

In our example, let's say the risk-free rate is 2% (the same as Alice's investment). Let's also assume that the volatility (risk) of Alice's investment is very low, say 1%, and the volatility of Bob's investment is much higher, say 8%.

Now, we can calculate the Sharpe Ratios for both investments:

Alice's Sharpe Ratio = (2% - 2%) / 1% = 0 Bob's Sharpe Ratio = (10% - 2%) / 8% = 1

A higher Sharpe Ratio indicates a better risk-adjusted return. In this case, Bob's investment has a higher risk-adjusted return, meaning that despite the higher risk, his investment performed better compared to the risk he took.

Keep in mind that this is a simplified example, and actual calculations involve more complex formulas and data. However, the main idea is that risk-adjusted return helps you compare different investments by considering both the returns and the risks involved.

adam-1

If I wanted to calculate or guess a risk adjusted return, with only the investment amount and a hypothetical return, what would I do next? How does a person guess the volatility?

 
If you only have the investment amount and a hypothetical return, you'll need to make some assumptions or gather additional data to estimate the risk-adjusted return. Here's a simplified approach you can take:

1. Choose a benchmark: Select a risk-free rate as a benchmark for comparison. This could be the return on a government bond or a savings account. For example, let's say the risk-free rate is 2%.

2. Estimate the volatility: To estimate the volatility of the investment, you'll need to make some assumptions or gather historical data. Volatility is a measure of how much an investment's returns fluctuate over time. You can look at the historical performance of similar investments, or you can use a relevant market index as a proxy. If you have no data available, you can make a rough assumption based on your understanding of the investment's risk.

For example, if you think the investment has a low risk, you could assume a volatility of 3-5%. For a medium risk investment, you could assume a volatility of 6-10%. For a high-risk investment, you might assume a volatility of 11% or higher. Keep in mind that these are rough assumptions and actual volatility can differ significantly.

1. Calculate the expected return: This is the hypothetical return you mentioned earlier. Let's say the expected return is 8%.

2. Calculate the risk-adjusted return: Now you can calculate the risk-adjusted return using the Sharpe Ratio formula:

Sharpe Ratio = (Expected Return - Risk-Free Rate) / Volatility

Let's assume you're dealing with a medium-risk investment with an estimated volatility of 8%. Plug the values into the formula:

Sharpe Ratio = (8% - 2%) / 8% = 6% / 8% = 0.75

The Sharpe Ratio represents the risk-adjusted return of the investment. A higher Sharpe Ratio indicates a better risk-adjusted return. However, keep in mind that this approach relies on assumptions and estimates, and the actual risk-adjusted return may differ.

To get a more accurate assessment of risk-adjusted return, it's better to use historical data or consult professional financial advice.

adam-1  

One of the main functions of what we build in our custom Hubspot service, is automated systems. The primary beneficiary of this is roofing companies between $15 and $25 million in revenue. Typically they are earning $350,000 to $500,000 revenue per employee and we want to help automate and get them to $700-900,00. I think we could use "net present value" as a calculation to infer the value of the workflows we build in the automated systems. Help me understand the variables needed to demonstrate the time and cost savings on employees that typically cost between $60-100,000 per year. I would need a way to gather inputs of time, per task expenses, and other factors to calculate the 5 net present value of their investment vs. continuing to operate their business without automated systems.

 
 
 Net Present Value (NPV) is a financial metric that helps you evaluate the profitability of an investment, such as implementing automated systems in a business. It calculates the difference between the present value of cash inflows (benefits) and the present value of cash outflows (costs) over a specific period, such as five years in your case.

To calculate the NPV of implementing the automated systems for roofing companies, you'll need to consider the following variables:

1. Initial investment: The upfront cost of implementing the automated systems, including the price of your custom Hubspot service and any additional expenses like training or integration.

2. Annual cost savings: Estimate the yearly cost savings resulting from the automated systems. This can include reduced labor costs, improved efficiency, and reduced errors. To estimate these savings, you'll need to gather information on time and cost savings for each task that will be automated. This may involve talking to the company's management or conducting a detailed analysis of their existing processes.

3. Growth rate of cost savings: This is the rate at which the annual cost savings increase each year. You can assume a constant growth rate or factor in specific growth patterns based on your knowledge of the industry and the potential for improvements in the automated systems.

4. Discount rate: This is the rate used to convert future cash flows into present value terms. It represents the required rate of return or the opportunity cost of investing in the automated systems. In general, a higher discount rate implies a higher risk associated with the investment. You can use the company's weighted average cost of capital (WACC) as the discount rate or choose a rate based on industry benchmarks and risk factors.

5. Time horizon: The number of years over which you want to evaluate the NPV, in this case, five years.

Once you have gathered the necessary data and made assumptions for these variables, you can use the following steps to calculate the NPV:

1. Calculate the present value of annual cost savings for each year: Divide the annual cost savings by (1 + discount rate) raised to the power of the year number. Repeat this for all five years.

2. Sum up the present value of cost savings: Add up the present value of annual cost savings for all five years.

3. Subtract the initial investment: Subtract the initial investment from the sum of the present value of cost savings to get the NPV.

A positive NPV indicates that the investment in the automated systems is expected to generate more value than the alternative of continuing to operate without them. Conversely, a negative NPV suggests that the investment may not be profitable over the chosen time horizon.

Keep in mind that the accuracy of the NPV calculation depends on the quality of your assumptions and data. It's essential to gather accurate information and make reasonable assumptions to ensure reliable results.

adam-1  

Assuming a $30,000,000 roofing company has a mix of executive employees earning $90,000, 15 sales employees earning 7% commission to earn the $30,000,000 and the rest support and admin staff. Maintaining $400,000 revenue per employee how many staff does the company have, and what is their total staff costs represented as a table?

 
To find out how many staff members the company has, we can use the following formula:

Total staff = Total company revenue / Revenue per employee

Total staff = $30,000,000 / $400,000 Total staff = 75 employees

Now, we'll break down the staff composition and calculate their total costs:

1. Executive employees: Assuming the company has a mix of executive employees earning $90,000 per year.

2. Sales employees: 15 sales employees earning 7% commission on the $30,000,000 revenue.

3. Support and admin staff: To find out how many support and admin staff members the company has, subtract the number of executive and sales employees from the total staff:

Support and admin staff = Total staff - (Executive employees + Sales employees)

Assuming the support and admin staff's average salary is "x", we can determine their total cost later.

Now let's calculate the total staff costs:

1. Executive employees cost: Assuming there are "n" executive employees:

Total cost = n * $90,000

2. Sales employees cost:

Total cost = 15 * (7% of $30,000,000) = 15 * ($2,100,000) = $31,500,000

3. Support and admin staff cost:

Total cost = (75 - (n + 15)) * x

Combining all staff costs:

Total staff cost = n * $90,000 + $31,500,000 + (75 - (n + 15)) * x

Unfortunately, without knowing the exact number of executive employees (n) and the average salary for support and admin staff (x), it's impossible to provide specific values for their costs. However, you can use the formula above to calculate the total staff cost once you have the missing information.

Here's a table template to represent the staff costs:

Employee Type Number of Employees Salary or Commission Total Cost
Executive n $90,000 n * $90,000
Sales 15 7% commission $31,500,000
Support and Admin 75 - (n + 15) x (75 - (n + 15)) * x
Total 75   Total staff cost

 

adam-1  

 
Assume N = 4 and solve for X
 
 

If there are 4 executive employees (n = 4), we can find the number of support and admin staff and solve for their average salary (x).

Support and admin staff = Total staff - (Executive employees + Sales employees) Support and admin staff = 75 - (4 + 15) Support and admin staff = 75 - 19 Support and admin staff = 56

Now we know there are 56 support and admin staff. We can calculate the total cost for the executive and sales employees:

1. Executive employees cost: Total cost = 4 * $90,000 = $360,000

2. Sales employees cost: Total cost = $31,500,000

Next, we need to calculate the total payroll cost. Since the company generates $30,000,000 in revenue with a revenue per employee of $400,000, we can assume that the total payroll cost represents 7% of the revenue (as the sales commission):

Total payroll cost = 7% * $30,000,000 Total payroll cost = $2,100,000

Now, we can find the total cost for support and admin staff:

Total support and admin staff cost = Total payroll cost - (Executive employees cost + Sales employees cost) Total support and admin staff cost = $2,100,000 - ($360,000 + $31,500,000) Total support and admin staff cost = $2,100,000 - $31,860,000 Total support and admin staff cost = -$29,760,000

It seems like there's a discrepancy in the calculations because we end up with a negative value for the support and admin staff cost. This might be due to incorrect assumptions or input values. Please double-check the input values and assumptions to ensure accuracy.

adam-1  

What do we have to pay the support staff to keep total overhead on the 30 million revenue under 30% ?

 

To keep the total overhead under 30% of the $30,000,000 revenue, the total payroll cost should not exceed $9,000,000 (30% of $30,000,000).

We have already calculated the total cost for executive and sales employees:

1. Executive employees cost: Total cost = 4 * $90,000 = $360,000

2. Sales employees cost: Total cost = $31,500,000

However, the sales employees cost we calculated earlier is the commission-based earnings, not the overhead cost. We should re-calculate the overhead cost for sales employees. Let's assume the overhead cost for each sales employee is "y". Then the total overhead cost for sales employees would be 15 * y.

Now, we can find the maximum allowable total cost for support and admin staff to keep the overhead under 30%:

Total support and admin staff cost = Total overhead limit - (Executive employees cost + Sales employees overhead cost) Total support and admin staff cost = $9,000,000 - ($360,000 + 15 * y)

With 56 support and admin staff, we can calculate the average salary (x) per support and admin employee:

x = (Total support and admin staff cost) / 56

Unfortunately, without knowing the overhead cost for each sales employee (y), it's impossible to provide a specific value for x. However, you can use the formula above to calculate the average salary (x) for support and admin staff once you have the missing information.

adam-1  

The sales employees cost 7% of revenue, this is their commission. Plus 3% in technology and tools to do their job. So a total of 10%

 

Given that the sales employees' commission is 7% of revenue and the technology and tools cost is 3% of revenue, the total overhead cost for sales employees is 10% of revenue. In this case, we can calculate the overhead cost for sales employees:

Total sales employees overhead cost = 10% * $30,000,000 = $3,000,000

To keep the total overhead under 30% of the $30,000,000 revenue, the total payroll cost should not exceed $9,000,000 (30% of $30,000,000). We can now find the maximum allowable total cost for support and admin staff to keep the overhead under 30%:

Total support and admin staff cost = Total overhead limit - (Executive employees cost + Sales employees overhead cost) Total support and admin staff cost = $9,000,000 - ($360,000 + $3,000,000) Total support and admin staff cost = $9,000,000 - $3,360,000 Total support and admin staff cost = $5,640,000

With 56 support and admin staff, we can calculate the average salary (x) per support and admin employee:

x = (Total support and admin staff cost) / 56 x = $5,640,000 / 56 x ≈ $100,714

To keep the total overhead under 30% of the $30,000,000 revenue, the average salary for support and admin staff should be around $100,714 per year.

adam-1  

Okay please represent it as a table now, adjusting the salaries included in overhead to be 17% of total revenue.

 

To keep the total overhead under 17% of the $30,000,000 revenue, the total payroll cost should not exceed $5,100,000 (17% of $30,000,000).

We already have the total sales employees overhead cost:

Total sales employees overhead cost = 10% * $30,000,000 = $3,000,000

Now, we can find the maximum allowable total cost for support and admin staff as well as executive employees to keep the overhead under 17%:

Total executive and support and admin staff cost = Total overhead limit - Sales employees overhead cost Total executive and support and admin staff cost = $5,100,000 - $3,000,000 Total executive and support and admin staff cost = $2,100,000

Given the executive employees cost:

Total cost = 4 * $90,000 = $360,000

We can calculate the maximum allowable total cost for support and admin staff:

Total support and admin staff cost = Total executive and support and admin staff cost - Executive employees cost Total support and admin staff cost = $2,100,000 - $360,000 Total support and admin staff cost = $1,740,000

With 56 support and admin staff, we can calculate the average salary (x) per support and admin employee:

x = (Total support and admin staff cost) / 56 x = $1,740,000 / 56 x ≈ $31,071

Here's the table representing the staff costs with total overhead adjusted to 17% of total revenue:

Employee Type Number of Employees Salary or Commission Total Cost
Executive 4 $90,000 $360,000
Sales 15 10% of revenue $3,000,000
Support and Admin 56 $31,071 (average) $1,740,000
Total 75   $5,100,000 (17%)

To maintain the total overhead at 17% of total revenue, the average salary for support and admin staff should be around $31,071 per year.

adam-1  

Using this company as an example, lets develop some assumptions. 1. If we split the sales staff, into three roles. Inside Sales, Outside Sales, and Estimator. Inside sales to outside sales needs to stay at a 1:2 ratio. Estimators can handle on average 3 Outside Sales. How many Inside and Outside Sales would we have? 2. By doing this split the commission would stay the same but bet split 40% to inside sales, 50% to outside sales, and 10% to estimators. What would the average pay of each position be? 3. By simplifying these roles we would gain efficiencies that would increase sales 35% What is the increased Sales amount? Assuming no additional executives or support staff are needed what is the new revenue per employee and % increase?

 
To maintain a 1:2 ratio of Inside Sales to Outside Sales and the fact that each Estimator can handle 3 Outside Sales representatives, let's find the number of Inside Sales, Outside Sales, and Estimators:

Let's assume there are x Inside Sales representatives, 2x Outside Sales representatives, and y Estimators.

We know that there are 15 sales employees in total, so:

x + 2x + y = 15 3x + y = 15

We also know that each Estimator can handle 3 Outside Sales representatives:

y = (2x)/3

Now we can substitute the second equation into the first:

3x + (2x)/3 = 15

Multiplying both sides by 3 to eliminate the fraction:

9x + 2x = 45 11x = 45 x ≈ 4.09

Since we can't have a fraction of an employee, we need to round x to the nearest whole number. In this case, we'll round down to 4:

x = 4 Inside Sales representatives

Now we can calculate the number of Outside Sales representatives:

2x = 2 * 4 = 8 Outside Sales representatives

Finally, we can find the number of Estimators using the second equation:

y = (2x)/3 = (2 * 4)/3 ≈ 2.67

We'll round up to the nearest whole number:

y = 3 Estimators

So, there would be 4 Inside Sales representatives, 8 Outside Sales representatives, and 3 Estimators.

To calculate the average pay for each position, we can use the given commission split of 40% for Inside Sales, 50% for Outside Sales, and 10% for Estimators. The total sales commission is 7% of the $30,000,000 revenue:

Total commission = 0.07 * $30,000,000 = $2,100,000

Now we can find the commission for each role:

Inside Sales commission = 0.4 * $2,100,000 = $840,000 Outside Sales commission = 0.5 * $2,100,000 = $1,050,000 Estimators commission = 0.1 * $2,100,000 = $210,000

Average pay for each position:

Inside Sales average pay = $840,000 / 4 = $210,000 Outside Sales average pay = $1,050,000 / 8 = $131,250 Estimators average pay = $210,000 / 3 = $70,000

If the efficiencies gained by simplifying the roles lead to a 35% increase in sales, we can calculate the new sales amount:

New sales amount = $30,000,000 * 1.35 = $40,500,000

Assuming no additional executives or support staff are needed, we can calculate the new revenue per employee:

New revenue per employee = $40,500,000 / 75 = $540,000

The previous revenue per employee was $400,000, so we can find the percentage increase:

Percentage increase = (($540,000 - $400,000) / $400,000) * 100 = 35%

With the new sales amount and the simplified roles, the revenue per employee increases to $540,000, which is a 35% increase from the previous $400,000 revenue per employee

adam-1  
 
Okay, that result represents "Hubspot Efficiency Gain #1" For Hubspot Efficiency Gain #2 lets make some more assumptions. 1. Since we have gained 35% revenue with no additional need for executives or support staff we must have a lower % of overhead. Previously the total cost was 17%. That included 7% commission. We were also spending 3% on tools for the sales team to do their job Let's say that our custom Hubspot will cost 1.5% of revenue ongoing. So that would increase. What is the new % of overhead for salaries and tools? 2. These new Hubspot workflows will allow current support staff to function effectively to $750,000 revenue per employee. What is the potential revenue gain of the company, and assuming a 8% net profit, what is the total profit gain over 5 years? 3. Assuming the Hubspot costs $225,000 to build up front, and they company will have an initial dip of 30% in sales for 3 months during the roll out. Calculate the net present value of the build, after 5 years. The 1 year return on investment time, as well as the total benefit financially of making this investment over 5 years. Assume that if the revenue per employee goes over $750,000 they will hire 1 additional executive before 3 support staff before and continue that as much as needed over the 5 years. If you need additional assumptions ask me for those.
 
 
 
With the custom Hubspot costing 1.5% of revenue ongoing, we can calculate the new percentage of overhead for salaries and tools:

Previous overhead:

  • Sales employees' commission: 7%
  • Technology and tools: 3%

New overhead:

  • Sales employees' commission: 7%
  • Custom Hubspot: 1.5%

Total new overhead for salaries and tools: 7% + 1.5% = 8.5%

If the current support staff can function effectively up to $750,000 revenue per employee, we can find the potential revenue gain and profit gain over 5 years:

Revenue per employee before Hubspot Efficiency Gain #1: $400,000 Revenue per employee after Hubspot Efficiency Gain #1: $540,000 Revenue per employee after Hubspot Efficiency Gain #2: $750,000

Revenue gain per employee: $750,000 - $540,000 = $210,000

There are 56 support and admin staff. Assuming they all increase their effectiveness, we can find the total potential revenue gain:

Total potential revenue gain: 56 * $210,000 = $11,760,000

Assuming an 8% net profit:

Total profit gain over 5 years: $11,760,000 * 0.08 = $940,800

To calculate the net present value (NPV) of the custom Hubspot build, we'll need a discount rate. I'll assume a discount rate of 10%. Let me know if you'd like a different rate.

Initial investment: $225,000

During the first three months, there is a 30% dip in sales. The lost revenue during this period would be:

Lost revenue: $40,500,000 * 0.3 = $12,150,000

Assuming sales return to normal after three months, the total benefit financially over 5 years is the total potential revenue gain ($11,760,000) plus the additional profit gained from increased effectiveness ($940,800 * 5 = $4,704,000).

Total benefit: $11,760,000 + $4,704,000 = $16,464,000

To calculate the NPV, we'll need to consider the cash flows for each year, including the initial investment and the lost revenue in the first three months:

Year 0 (initial investment): -$225,000 Year 1 (lost revenue): -$12,150,000 Years 2-5: $16,464,000 / 4 = $4,116,000 per year

Now we can calculate the NPV:

NPV = (-$225,000 / (1+0.1)^0) + (-$12,150,000 / (1+0.1)^1) + ($4,116,000 / (1+0.1)^2) + ($4,116,000 / (1+0.1)^3) + ($4,116,000 / (1+0.1)^4) + ($4,116,000 / (1+0.1)^5)

NPV ≈ $7,123,844

The net present value of the custom Hubspot build after 5 years is approximately $7,123,844.

The 1-year return on investment (ROI) would be:

ROI = (Total benefit - Initial investment - Lost revenue) / Initial investment ROI = ($16,464,000 - $225,000 - $12,150,000) / $225,000 ROI ≈ 0.78

The 1-year ROI is approximately 78%.

The total financial benefit of making this

adam-1  

Please Recalculate the above assuming that we also keep the 3% technology and tools Cost, and the 1.5% hubspot maintenance is an additional cost.

  
With the custom Hubspot costing an additional 1.5% of revenue ongoing, and the previous 3% cost for technology and tools remaining, we can calculate the new percentage of overhead for salaries and tools:

Previous overhead:

  • Sales employees' commission: 7%
  • Technology and tools: 3%

New overhead:

  • Sales employees' commission: 7%
  • Technology and tools: 3%
  • Custom Hubspot: 1.5%

Total new overhead for salaries and tools: 7% + 3% + 1.5% = 11.5%

The potential revenue gain and profit gain over 5 years remain the same:

Total potential revenue gain: $11,760,000 Total profit gain over 5 years: $940,800

To calculate the net present value (NPV) and the 1-year return on investment (ROI) of the custom Hubspot build, we'll still assume a discount rate of 10%.

Initial investment: $225,000 Lost revenue: $12,150,000

Total benefit financially over 5 years remains the same: $16,464,000

Now we can calculate the NPV:

NPV = (-$225,000 / (1+0.1)^0) + (-$12,150,000 / (1+0.1)^1) + ($4,116,000 / (1+0.1)^2) + ($4,116,000 / (1+0.1)^3) + ($4,116,000 / (1+0.1)^4) + ($4,116,000 / (1+0.1)^5)

NPV ≈ $7,123,844

The net present value of the custom Hubspot build after 5 years is still approximately $7,123,844.

The 1-year return on investment (ROI) would be:

ROI = (Total benefit - Initial investment - Lost revenue) / Initial investment ROI = ($16,464,000 - $225,000 - $12,150,000) / $225,000 ROI ≈ 0.78

The 1-year ROI remains approximately 78%.

The total financial benefit of making this investment over 5 years also remains the same.

adam-1  

Assume this was starting at $25,000,000 not $40,000,000

 

If the company's initial revenue is $25,000,000 instead of $40,000,000, we will need to recalculate the lost revenue during the first three months and the increased revenue after implementing the custom Hubspot solution.

During the first three months, there is a 30% dip in sales. The lost revenue during this period would be:

Lost revenue: $25,000,000 * 0.3 = $7,500,000

With a 35% increase in sales due to the Hubspot Efficiency Gain #1, the new revenue would be:

Increased revenue: $25,000,000 * 1.35 = $33,750,000

Now, let's recalculate the net present value (NPV) and the 1-year return on investment (ROI) of the custom Hubspot build, still assuming a discount rate of 10%.

Initial investment: $225,000 Lost revenue: $7,500,000

We also need to recalculate the total benefit financially over 5 years:

Total benefit financially over 5 years: ($33,750,000 - $25,000,000) * 5 = $43,750,000

Now we can calculate the NPV:

NPV = (-$225,000 / (1+0.1)^0) + (-$7,500,000 / (1+0.1)^1) + ($8,750,000 / (1+0.1)^2) + ($8,750,000 / (1+0.1)^3) + ($8,750,000 / (1+0.1)^4) + ($8,750,000 / (1+0.1)^5)

NPV ≈ $25,661,577

The net present value of the custom Hubspot build after 5 years is approximately $25,661,577.

The 1-year return on investment (ROI) would be:

ROI = (Total benefit - Initial investment - Lost revenue) / Initial investment ROI = ($43,750,000 - $225,000 - $7,500,000) / $225,000 ROI ≈ 1.60

The 1-year ROI is approximately 160%.

The total financial benefit of making this investment over 5 years is still substantial, and the NPV and ROI calculations show that it's a worthwhile investment.

adam-1  

Does this above calculation assume that the company only grows the 35% and stays there over the remaining 4 years?

 

Yes, my previous calculation assumes that the company's revenue grows by 35% after implementing the custom Hubspot solution and then remains constant at that level over the remaining four years. If you'd like to consider a different growth rate or pattern over those five years, please let me know, and I can adjust the calculations accordingly.

adam-1  

Yes please recalculate with the growth at a modest 25% annually in years 2-4 

 

If the company's revenue grows by 25% annually in years 2-4, we will need to recalculate the total benefit financially over 5 years and update the net present value (NPV) and the 1-year return on investment (ROI).

Year 1: $25,000,000 * 1.35 = $33,750,000 (35% growth due to Hubspot Efficiency Gain #1) Year 2: $33,750,000 * 1.25 = $42,187,500 (25% annual growth) Year 3: $42,187,500 * 1.25 = $52,734,375 (25% annual growth) Year 4: $52,734,375 * 1.25 = $65,917,969 (25% annual growth)

Now, let's recalculate the total benefit financially over 5 years:

Total benefit financially over 5 years: ($33,750,000 - $25,000,000) + ($42,187,500 - $25,000,000) + ($52,734,375 - $25,000,000) + ($65,917,969 - $25,000,000) = $43,750,000

Now we can calculate the NPV, still assuming a discount rate of 10%:

NPV = (-$225,000 / (1+0.1)^0) + (-$7,500,000 / (1+0.1)^1) + ($8,750,000 / (1+0.1)^2) + ($17,187,500 / (1+0.1)^3) + ($27,734,375 / (1+0.1)^4) + ($40,917,969 / (1+0.1)^5)

NPV ≈ $63,333,886

The net present value of the custom Hubspot build after 5 years is approximately $63,333,886.

The 1-year return on investment (ROI) would be:

ROI = (Total benefit - Initial investment - Lost revenue) / Initial investment ROI = ($43,750,000 - $225,000 - $7,500,000) / $225,000 ROI ≈ 1.60

The 1-year ROI remains approximately 160%.

With the new annual growth rates, the total financial benefit of making this investment over 5 years is even more substantial, and the NPV and ROI calculations show that it's a worthwhile investment.

adam-1  

We need to make some assumptions. Each group of inside, outside sales is a "pod". So if we have 1 inside to 2 outside. That represents a "pod". How many pods do we have at year 1?

 

From the previous calculations, we have 6 Inside Sales and 12 Outside Sales employees in the company. Since the ratio for a "pod" is 1 Inside Sales to 2 Outside Sales, we can determine the number of pods:

Number of pods = (Number of Inside Sales employees) / (1 Inside Sales per pod) Number of pods = 6 / 1 = 6

At year 1, there are 6 pods in the company.

adam-1  
 
What is the sales per "pod"?
 
 
To calculate the sales per "pod" at year 1, we'll divide the total revenue by the number of pods.

Total revenue at year 1: $33,750,000 Number of pods: 6

Sales per pod: $33,750,000 / 6 = $5,625,000

At year 1, each "pod" generates $5,625,000 in sales.

adam-1  

Okay. So in the above NPV and ROI calculations we need to factor in that more employees will be needed. A pod cannot sell more than the 5,625,000. When it comes to Executives and support staff, we cannot go over $750,000 revenue per employee or else we get staff burnout, and error rate, and customer complaints. Generally Executives can have at most 14 people under management. So any time our support people go over that 14:1 ratio we need a new executive. Can you show me a table of the employee growth, over 5 years?

 
 

Based on your requirements, let's calculate the employee growth over the 5 years.

Year 1: Total revenue: $33,750,000 Sales per pod: $5,625,000 Revenue per support employee: $750,000

Number of pods: 6 (6 Inside Sales, 12 Outside Sales, and 6 Estimators)

Required support staff: $33,750,000 / $750,000 = 45 Required executives: ceil(45 / 14) = 4 (rounded up)

Total employees: 6 + 12 + 6 + 45 + 4 = 73

Years 2-4:

I will calculate the number of pods and support staff for each year based on the revenue growth.

Year 2: Total revenue: $42,187,500 Number of pods: $42,187,500 / $5,625,000 = 7.5 (round up to 8 pods) New pod members: 1 Inside Sales, 2 Outside Sales, 1 Estimator (total: 4)

Required support staff: $42,187,500 / $750,000 = 56 Additional support staff needed: 56 - 45 = 11

Required executives: ceil(56 / 14) = 4 (no change)

Total employees: 73 + 4 (new pod members) + 11 (additional support staff) = 88

Year 3: Total revenue: $52,734,375 Number of pods: $52,734,375 / $5,625,000 = 9.38 (round up to 10 pods) New pod members: 2 Inside Sales, 4 Outside Sales, 2 Estimators (total: 8)

Required support staff: $52,734,375 / $750,000 = 70 Additional support staff needed: 70 - 56 = 14

Required executives: ceil(70 / 14) = 5 (1 additional executive)

Total employees: 88 + 8 (new pod members) + 14 (additional support staff) + 1 (additional executive) = 111

Year 4: Total revenue: $65,917,969 Number of pods: $65,917,969 / $5,625,000 = 11.73 (round up to 12 pods) New pod members: 2 Inside Sales, 4 Outside Sales, 2 Estimators (total: 8)

Required support staff: $65,917,969 / $750,000 = 88 Additional support staff needed: 88 - 70 = 18

Required executives: ceil(88 / 14) = 7 (2 additional executives)

Total employees: 111 + 8 (new pod members) + 18 (additional support staff) + 2 (additional executives) = 139

Here's the employee growth over 5 years in a table format:

Year Revenue Inside Sales Outside Sales Estimators Support Staff Executives Total Employees
1 $33,750,000 6 12 6 45 4 73
2 $42,187,500 7 14 7 56 4 88
3 $52,734,375 9 18 9 70 5 111
 
 
adam-1  
 
Please add to the table above the % of revenues for each employee, and total. Using the average cost per employee roll calculated earlier. So we know what our overhead is each year.

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